Angel Oak Mortgage REIT, Inc. (AOMR)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of Angel Oak Mortgage REIT, Inc. The following should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto. References herein to our “Company,” “we,” “us,” or “our” refer to Angel Oak Mortgage REIT, Inc. and its subsidiaries including Angel Oak Mortgage Operating Partnership, LP (the “Operating Partnership”), through which we hold substantially all of our assets and conduct our operations. Unless otherwise indicated, the term “Angel Oak” refers collectively to Angel Oak Capital Advisors, LLC (“Angel Oak Capital”) and its affiliates, including Falcons I, LLC, our external manager (our “Manager”), Angel Oak Companies, LP (“Angel Oak Companies”), and the proprietary mortgage lending platform of affiliates Angel Oak Mortgage Solutions LLC (together with other non-operational affiliated originators, “Angel Oak Mortgage Lending”).

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may differ from our beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 (the “Annual Report on Form 10-K”). Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in other reports we file with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Factors that could have a material adverse effect on future results and performance relative to those set forth in or implied by the related forward-looking statements, as well as on our business, financial condition, liquidity, results of operations and prospects, include, but are not limited to:

•the effects of adverse conditions or developments in the financial markets and the economy upon our ability to acquire target assets such as non-qualified residential mortgage (“non-QM”) loans, including those sourced from Angel Oak’s proprietary mortgage lending platform, Angel Oak Mortgage Lending;

•the level and volatility of prevailing interest rates and credit spreads;

•changes in our industry, inflation, interest rates, business strategies, target assets, the debt or equity markets, the general economy (or in specific regions) or the residential real estate finance and real estate markets specifically;

•general volatility of the markets in which we invest;

•changes in the availability of attractive loans and other investment opportunities, including non-QM loans sourced from Angel Oak Mortgage Lending;

•the ability of our Manager to locate suitable investments for us, manage our portfolio, and implement our strategy;

•our ability to profitably execute securitization transactions;

•our ability to obtain and maintain financing arrangements on favorable terms, or at all;

•the adequacy of collateral securing our investments and a decline in the fair value of our investments;

•the timing of cash flows, if any, from our investments;

•the operating performance, liquidity, and financial condition of borrowers;

•increased rates of default and/or decreased recovery rates on our investments;

•changes in prepayment rates on our investments;

•the departure of any of the members of senior management of the Company, our Manager, or Angel Oak;

•the availability of qualified personnel;

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•conflicts with Angel Oak, including our Manager and its personnel, including our officers, and entities managed by Angel Oak;

•events, contemplated or otherwise, such as acts of God, including hurricanes, wildfires, earthquakes, and other natural disasters, including those resulting from global climate change, pandemics, acts of war or terrorism, the initiation or escalation of military conflicts, and others that may cause unanticipated and uninsured performance declines, disruptions in markets, volatility in prevailing interest rates, and/or losses to us or the owners and operators of the real estate securing our investments;

•the occurrence of certain geo-political events (including global trade disputes related to tariffs) that affect the normal and peaceful course of international relations;

•impact of and changes in governmental regulations, tax laws and rates, accounting principles and policies and similar matters;

•the level of governmental involvement in the U.S. mortgage market;

•future changes with respect to the Federal National Mortgage Association (“Fannie Mae”) or Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the “GSEs”) in the mortgage market and related events, including the lack of certainty as to the future roles of these entities and the U.S. Government in the mortgage market and changes to legislation and regulations affecting these entities;

•effects of hedging instruments on our target assets and our returns, and the degree to which our hedging strategies may or may not protect us from interest rate volatility;

•our ability to make distributions to our stockholders in the future at the level contemplated by our stockholders or the market generally, or at all;

•our ability to continue to qualify as a real estate investment trust (a “REIT”) for U.S. federal income tax purposes; and

•our ability to maintain our exclusion from regulation as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”).

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and in the Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date such statements are made. The risks summarized under Item 1A. “Risk Factors” in the Annual Report on Form 10-K could cause actual results and performance to differ materially from those set forth in or implied by our forward-looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us.

Important Information Regarding Our Disclosure to Investors

We may use our website (www.angeloakreit.com) to communicate with our investors and disclose company information. The information disclosed through our website may be considered material, so investors should monitor our website in addition to press releases, SEC filings and public conference calls and webcasts. The contents of our website referenced herein are not incorporated by reference into this report.

General

Angel Oak Mortgage REIT, Inc. is a real estate finance company focused on acquiring and investing in first and second lien non-QM loans and other mortgage-related assets in the U.S. mortgage market. Our strategy is to make credit-sensitive investments primarily in newly-originated non-QM loans and other mortgage assets that are primarily made to higher-quality borrowers and sourced from the proprietary mortgage lending platform of our affiliate, Angel Oak Mortgage Lending and other originators through our relationship with Angel Oak Capital. We may also invest in other residential mortgage loans, RMBS, and other mortgage-related assets, which, collectively with non-QM loans, we refer to as our target assets. Our objective is to generate attractive risk-adjusted returns for our stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles.

We are externally managed and advised by our Manager, Falcons I, LLC, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets. Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination platform, is a market leader in non‑QM loan production.

Through our relationship with our Manager, we benefit from Angel Oak’s vertically integrated platform and in‑house expertise, providing us with the resources that we believe are necessary to generate attractive risk‑adjusted returns for our stockholders. Angel Oak Mortgage Lending provides us with proprietary access to non‑QM loans, as well as transparency over the underwriting process and the ability to acquire loans with our desired credit and return profile. We believe our ability to identify and acquire target assets through the secondary market is bolstered by Angel Oak’s experience in the mortgage industry and expertise in structured credit investments. In addition, we believe

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we have significant competitive advantages due to Angel Oak’s analytical investment tools, extensive relationships in the financial community, financing and capital structuring skills, investment surveillance capabilities, and operational expertise.

On October 1, 2025, Angel Oak Companies, an affiliate of our Manager, and Brookfield Asset Management Ltd. (“Brookfield”), closed on a strategic transaction resulting in the beneficial owners of Angel Oak Companies selling approximately 51% of the outstanding beneficial ownership of Angel Oak Companies, and indirectly our Manager, to Brookfield (the “Strategic Transaction”). Angel Oak Companies has advised the Company that the Strategic Transaction is not expected to result in any material change in the day-to-day management of the Company, and will not result in any material changes to the Company’s investment objectives and strategies. As part of the Strategic Transaction, Brookfield has the right to acquire additional beneficial ownership in Angel Oak Companies beginning in 2027, which over time could result in Brookfield taking control of the board of directors of Angel Oak Companies.

On October 1, 2025, immediately following the closing of the Strategic Transaction between Angel Oak Companies and Brookfield, the Company, the Operating Partnership, and our Manager, entered into a new management agreement (the “Management Agreement”) to supersede and replace in its entirety the Amended and Restated Management Agreement, dated as of May 1, 2024, previously in effect (the “Prior Management Agreement”). The Management Agreement is substantially and economically similar to the Prior Management Agreement. The Management Agreement reflects two substantive changes from the Prior Management Agreement. The Prior Management Agreement required the Company to reimburse our Manager for a share of the wages, salaries and benefits incurred by our Manager with respect to the Company’s Chief Executive Officer and President, based upon the percentage of such person’s working time relating to the Company. Under the Management Agreement, this provision was modified to provide that, for so long as Sreeni Prabhu serves as the Company’s Chief Executive Officer

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis, including information with respect to our business strategies, our expectations regarding the future performance of our business, and the other non-historical statements contained herein, are forward-looking statements. Our actual results may differ materially from those anticipated in any forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” elsewhere in this Annual Report on Form 10-K.

General

Angel Oak Mortgage REIT, Inc. is a real estate finance company focused on acquiring and investing in first and second lien non-QM loans and other mortgage-related assets in the U.S. mortgage market. Our strategy is to make credit-sensitive investments primarily in newly-originated non-QM loans and other mortgage assets that are primarily made to higher-quality borrowers and sourced from the proprietary mortgage lending platform of our affiliate, Angel Oak Mortgage Lending and other originators through our relationship with Angel Oak Capital. We may also invest in other residential mortgage loans, RMBS, and other mortgage-related assets, which, collectively with non-QM loans, we refer to as our target assets. Our objective is to generate attractive risk-adjusted returns for our stockholders, through cash distributions and capital appreciation, across interest rate and credit cycles.

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We are externally managed and advised by our Manager, Falcons I, LLC, a registered investment adviser under the Investment Advisers Act of 1940 and an affiliate of Angel Oak Capital, a leading alternative credit manager with market leadership in mortgage credit that includes asset management, lending and capital markets. Angel Oak Mortgage Lending, an affiliated Angel Oak mortgage origination platform, is a market leader in non‑QM loan production.

Through our relationship with our Manager, we benefit from Angel Oak’s vertically integrated platform and in‑house expertise, providing us with the resources that we believe are necessary to generate attractive risk‑adjusted returns for our stockholders. Angel Oak Mortgage Lending provides us with proprietary access to non‑QM loans, as well as transparency over the underwriting process and the ability to acquire loans with our desired credit and return profile. We believe our ability to identify and acquire target assets through the secondary market is bolstered by Angel Oak’s experience in the mortgage industry and expertise in structured credit investments. In addition, we believe we have significant competitive advantages due to Angel Oak’s analytical investment tools, extensive relationships in the financial community, financing and capital structuring skills, investment surveillance capabilities, and operational expertise.

On October 1, 2025, immediately following the closing of the Strategic Transaction between Angel Oak Companies and Brookfield, the Company, our operating partnership, and our Manager, entered into a new Management Agreement to supersede and replace in its entirety the Prior Management Agreement previously in effect. The Management Agreement is substantially and economically similar to the Prior Management Agreement. The Management Agreement reflects two substantive changes from the Prior Management Agreement. The Prior Management Agreement required the Company to reimburse our Manager for a share of the wages, salaries and benefits incurred by our Manager with respect to the Company’s Chief Executive Officer and President, based upon the percentage of such person’s working time relating to the Company. Under the Management Agreement, this provision was modified to provide that, for so long as Sreeni Prabhu serves as the Company’s Chief Executive Officer and President, our Manager will not be entitled to be reimbursed for the costs of his wages, salaries and benefits unless Mr. Prabhu devotes 100% of his working time on matters related to the Company and its subsidiaries (which is not currently the case), and any such reimbursement is approved in advance by at least two-thirds of the independent directors. In addition, under the Management Agreement, with respect to the Company’s annual right to decline to renew the Management Agreement without cause upon the affirmative vote of at least two-thirds of the independent directors based upon a determination that the compensation payable to our Manager is not fair, it was clarified that any such determination will take into account amounts sought for expense reimbursement.

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2019. Commencing with our taxable year ended December 31, 2019, we believe that we have been organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Code. Our qualification as a REIT, and maintenance of such qualification, depends on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels, and the concentration of ownership of our stock. We also intend to operate our business in a manner that will allow us to maintain our exclusion from regulation as an investment company under the Investment Company Act. Our common stock commenced trading on the New York Stock Exchange on June 17, 2021.

We expect to derive our returns primarily from the difference between the interest we earn on loans we invest in and our cost of capital, as well as the returns from bonds, including risk retention securities, that are retained after securitizing the underlying loan collateral.

Trends and Recent Developments

Overall macroeconomic environment and its effect on us

In 2025, the U.S. Federal Reserve Bank (the “Fed”) held the federal funds rate stable through most of the year, and began easing policy in September with its first federal funds rate cut of the year, signaling confidence in an easing of inflationary pressures. Ultimately, three 25 basis point cuts between September and December 2025 culminated in a federal funds rate of 3.50% to 3.75% as of the end of 2025 as compared to 4.25% to 4.50% as of the end of 2024. 2025 was a more constructive general environment compared to 2024; however, while dampened compared to 2024, uncertainty and volatility persisted in 2025 with regard to key inflation and employment data. Overall, the dovish approach was constructive for prospective homebuyers, as mortgage rates decreased in line with the federal funds rate. Additionally, securitization markets demonstrated an improved environment with robust activity and a continued tightening of execution spreads. Expectations are for a steady interest rate environment in 2026 with further inflation moderation and cooling, though positive, economic growth.

The two-year Treasury yield ended at 3.48% as of the end of 2025, demonstrating a decrease of 77 basis points compared to 4.25% as of the end of 2024. The five-year Treasury yield also decreased, ending at 3.73% as of the end of 2025, marking a decrease of 66 basis points compared to 4.39% as of the end of 2024. Similarly the ten-year Treasury yield decreased as well, ending 2025 at 4.17%, a decrease of 41 basis points compared to 4.58% as of the end of 2024. Over the course of 2025, the two-year Treasury saw yields ranging from a high of 4.39% and a low of 3.43%, the five-year Treasury observed yields ranging from a high of 4.61% and a low of 3.55%, and the ten-year saw yields ranging from a high of 4.79% and a low of 3.95%. The Treasury yield curve steepened throughout the course of the year as well, with the spread between the two year and ten year Treasury yield increasing from 32 basis points as of the end of 2024 to 69 basis points as of the end of 2025. All tenors of the Treasury yield saw their annual high rate in January 2025 and their annual low rate in October 2025 before increasing slightly to end the year.

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Residential mortgage rates responded alongside the decreases in the federal funds rate, with the average conforming 30-year mortgage rate decreasing by 70 basis points to 6.15% as of the end of 2025 compared to 6.85% as of the end of 2024. Mortgage applications rose in 2025, particularly toward the end of the year, reflecting improved conditions compared to 2024. Residential mortgage rates are key benchmarks for the valuation of our portfolio, and the decreasing rates drove corresponding positive impacts to our asset pricing. Continued purchases of newly originated loans and securitizations of recently originated loans contributed to an increase in the valuations of our residential whole loans and loans in securitization trusts portfolios over the course of 2025, along with a healthy securitization market. We expect to continue to purchase newly originated loans, which should continue to support overall portfolio valuations and securitization execution going forward.

Our investment performance

Net Interest Margin (“NIM”). We generated $4.2 million greater net interest income for the year ended December 31, 2025 as compared to the prior year, driven primarily by steady purchases and securitizations of newly originated loans, higher weighted average coupons on our overall investment portfolio, and decreases in funding costs as a percentage of borrowings associated with our residential whole loans portfolio. Our interest income for the year ended December 31, 2025 was $143.7 million compared to $110.4 million in the prior year, and our interest expense for the year ended December 31, 2025 was $102.6 million compared to $73.5 million in the prior year. Our net interest income for the year ended December 31, 2025 increased by 11% versus the prior year.

Net realized loss. Our net realized loss of $10.9 million for the year ended December 31, 2025 was driven by the loss of unamortized premiums associated with an increased rate of loans in our loans held in securitization trusts portfolio that were prepaid during the year, as well as realized losses on forward contracts used to hedge valuation risk in our residential loan portfolio. When valuations of our residential loan portfolio increase, we will typically observe a corresponding negative impact in forward contracts. Our net realized loss of $9.2 million for the year ended December 31, 2024 was primarily driven by our participation in co-mingled securitizations with other Angel Oak entities (AOMT 2024-3 and AOMT 2024-6). Because these securitizations did not result in the consolidation of VIE entities, we recognized a loss on the sale of these loans; however, the realized losses were less than the previous period’s unrealized losses for these loans, which drove overall positive GAAP net income for these securitizations.

Net unrealized gain. Our net unrealized gain of $30.8 million for the year ended December 31, 2025 was primarily attributable to $28.6 million of unrealized gains in our residential loans in securitizations trusts and non-recourse securitization obligation portfolio, as well as $3.3 million of unrealized gains in our residential loan portfolio. Gains were driven by a decreasing interest rate environment that led to rebounds in the valuations of lower-coupon securitizations as well as higher marks on new loan purchases and more recent, higher-coupon securitizations.

Whole loans and securitization activity

During the year ended December 31, 2025, we purchased $861.8 million of newly-originated, current market coupon non-QM residential mortgage loans, second lien mortgage loans, and HELOCs, with a weighted average coupon of 7.79%, weighted average combined loan-to-value ratio (“CLTV”) of 65.4% and weighted average credit score of 756. Comparatively, during the year ended December 31, 2024, we purchased $683.7 million of newly-originated non-QM residential mortgage loans, with a weighted average coupon of 7.64%, weighted average CLTV of 70.2% and weighted average credit score of 749.

We participated in four securitization transactions and one re-securitization in 2025, contributing a total of $704 million of unpaid principal balance of residential mortgage loans to the securitizations. In April 2025, we issued AOMT 2025-4, a $284.3 million unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed the entire balance as the sole participant. In May 2025, we participated in AOMT 2025-6, a $349.7 million unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed loans with an unpaid principal balance of $87.2 million. In September 2025, the Company in conjunction with the Company’s affiliates exercised the combined call rights on the AOMT 2019-2 and AOMT 2019-4 securitizations in which we participated, along with others in which we did not participate, and subsequently re-securitized the underlying loans in AOMT 2025-R1. We no longer hold any economic interest in these loans or the re-securitization. This transaction resulted in $19.4 million of cash, which was used for new loan purchases and other accretive uses, and $7.3 million of non-performing loans that were classified as held for sale and recorded in other assets. In October 2025, we issued AOMT 2025-10, a $274.3 million unpaid principal balance securitization backed by a pool of residential mortgage loans, to which we contributed the entire balance as the sole participant. In December 2025, we participated in AOMT 2025-HB2, a $281.4 million unpaid principal balance securitization backed by HELOCs on one‑to‑four family residential properties, to which we contributed loans with an unpaid principal balance of $58.6 million.

We issued AOMT 2025-4 and 2025-10 as the sole participant in the securitizations. As the primary beneficiary we have consolidated these securitizations, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheet as of the applicable balance sheet date.

AOMT 2025-6 and AOMT 2025-HB2 were securitization transactions entered into with other Angel Oak affiliates, for which we are not considered to be a “primary beneficiary”of the applicable securitization vehicle. Therefore, the bonds retained from these

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securitizations, as well as from our securitizations prior to 2021, are held on our consolidated balance sheets as RMBS as of December 31, 2025 and December 31, 2024. The risk retention portion of the bonds retained from these securitizations is presented in other assets on our consolidated balance sheets as of the applicable dates. We may decide to enter into similar securitization transactions in the future.

AOMT 2025-R1 was a transaction entered into with other Angel Oak affiliates, for which we are not considered to be a "primary beneficiary" of the applicable securitization vehicle. We did not retain any bonds or economics from this re-securitization.

Whole loan financing facilities activity

We continuously evaluate our lender base and may enter into new agreements and / or exit agreements as we deem prudent, in accordance with our core financial strategy of purchasing whole loans and financing them until securitized. See “Liquidity and Capital Resources” below for a full description of our financing arrangements. Our total borrowing capacity was $1.3 billion as of December 31, 2025. Highlights of whole loan financing facilities activity over 2025 are as follows:

▪During the year ended December 31, 2025, we maintained the same whole loan financing facility lender base as of December 31, 2024, with the exception that in the fourth quarter of 2025, the Company and one of its subsidiaries entered into a $200.0 million repurchase facility with a global investment bank (“Global Investment Bank 4”) through the execution of a Master Repurchase Agreement and Securities Contract (the “Global Investment Bank 4 Master Repurchase Agreement”). The amount expected to be advanced by Global Investment Bank 4 is generally in line with other similar agreements that the Company has entered into. Additionally, the rates, terms, events of default, and remedies for such events of default contained within the Global Investment Bank 4 Master Repurchase Agreement are generally in line with other similar agreements that the Company has entered into. The interest rate is equal to the sum of (1) a spread of 1.60%, and (2) Term SOFR. The Company is subject to various financial and other covenants, including those relating to (1) declines in tangible net worth; (2) a maximum ratio of indebtedness to tangible net worth; and (3) minimum liquidity. The Global Investment Bank 4 Master Repurchase Agreement expires on October 6, 2027, unless terminated earlier pursuant to the terms of the Global Investment Bank 4 Master Repurchase Agreement.

•In the fourth quarter of 2025, the loan financing facility with Multinational Bank 1 was extended through June 25, 2026 in accordance with the terms of the agreement, which contemplates three-month renewals. The interest rate pricing spread remained unchanged from the prior extension at a range from 1.65% to 2.10%.

•In the fourth quarter of 2025, the Company amended its loan financing facility with Global Investment Bank 2. The interest rate pricing spread was updated from a range of 1.75% to 3.35% to a range of 1.65% to 2.40%, based on collateral type, loan status, dwell time and other factors.

Key Financial Metrics

As a real estate finance company, we believe the key financial measures and indicators for our business are Distributable Earnings, Distributable Earnings Return on Average Equity, Book Value per Share of Common Stock, and Economic Book Value per Share of Common Stock.

Distributable Earnings

Distributable Earnings is a non‑GAAP measure and is defined as net income (loss) allocable to common stockholders as calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”), excluding (1) unrealized gains and losses on our aggregate portfolio, (2) impairment losses, (3) extinguishment of debt, (4) non-cash equity compensation expense, (5) the incentive fee earned by our Manager, (6) realized gains or losses on swap terminations and (7) certain other nonrecurring gains or losses. We believe that the presentation of Distributable Earnings provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. We believe Distributable Earnings as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. As a REIT, we are generally required to distribute at least 90% of our annual REIT taxable income and to pay U.S. federal income tax at the regular corporate rate to the extent that we annually distribute less than 100% of such taxable income. Given these requirements and our belief that dividends are generally one of the principal reasons that stockholders invest in our common stock, generally we intend to attempt to pay dividends to our stockholders in an amount equal to our REIT taxable income, if and to the extent authorized by our Board of Directors. Distributable Earnings is one of a number of factors considered by our Board of Directors in declaring dividends and, while not a direct measure of REIT taxable income, over time, the measure can be considered a useful indicator of our dividends. Distributable Earnings should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings may not be comparable to similar measures presented by other REITs.

We also use Distributable Earnings to determine the incentive fee, if any, payable to our Manager pursuant to the Management Agreement. For information on the fees that are payable to our Manager under the Management Agreement, see Part II, Item 8, Note 11 – Related Party Transactions in our audited consolidated financial statements included in this Annual Report on Form 10-K.

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Distributable Earnings were approximately $14.6 million and $7.0 million for the years ended December 31, 2025 and December 31, 2024, respectively. The table below sets forth a reconciliation of net income allocable to common stockholders, calculated in accordance with GAAP, to Distributable Earnings for the years ended December 31, 2025 and December 31, 2024:

Distributable Earnings Return on Average Equity

Distributable Earnings Return on Average Equity is a non-GAAP measure and is defined as annual or annualized Distributable Earnings divided by average total common stockholders’ equity. We believe that the presentation of Distributable Earnings Return on Average Equity provides investors with a useful measure to facilitate comparisons of financial performance among our REIT peers, but has important limitations. Additionally, we believe Distributable Earnings Return on Average Equity provides investors with additional detail on the Distributable Earnings generated by our invested equity capital. We believe Distributable Earnings Return on Average Equity as described above helps evaluate our financial performance without the impact of certain transactions but is of limited usefulness as an analytical tool. Therefore, Distributable Earnings Return on Average Equity should not be viewed in isolation and is not a substitute for net income computed in accordance with GAAP. Our methodology for calculating Distributable Earnings Return on Average Equity may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our Distributable Earnings Return on Average Equity may not be comparable to similar measures presented by other REITs. Set forth below is our computation of Distributable Earnings Return on Average Equity for the years ended December 31, 2025 and December 31, 2024:

Book Value per Share of Common Stock

The following table sets forth the calculation of our book value per share of common stock as of each quarter-end date of 2025 and as of December 31, 2024:

Economic Book Value per Share of Common Stock

“Economic book value” is a non-GAAP financial measure of our financial position. To calculate our economic book value, the portions of our non-recourse financing obligation held at amortized cost are adjusted to their fair value. These adjustments are also reflected in the table below in our end of period total stockholders’ equity. Management considers economic book value to provide investors with a

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useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for our legally held retained bonds, irrespective of the accounting model applied for GAAP reporting purposes. Economic book value does not represent and should not be considered as a substitute for book value per share of common stock or stockholders’ equity, as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a reconciliation from GAAP total stockholders’ equity and book value per share of common stock to economic book value and economic book value per share of common stock as of each quarter-end date of 2025 and as of December 31, 2024:

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Results of Operations

Year Ended December 31, 2025, Compared to the Year Ended December 31, 2024

The following table sets forth a summary of our results of operations for the years ended December 31, 2025 and December 31, 2024:

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Net Interest Income

The following table sets forth the components of net interest income for the years ended December 31, 2025 and December 31, 2024:

(1)     Primarily comprised of interest received on cash deposits, including interest earned on margin cash collateral.

Net interest income for the years ended December 31, 2025 and December 31, 2024 was $41.1 million and $36.9 million, respectively. Net interest income increased by approximately $4.2 million for the year ended December 31, 2025 as compared to December 31, 2024, primarily due to new asset purchases and securitizations, as well as a higher interest rate associated with those and other target assets. Interest expense increased for the year ended December 31, 2025 as compared to December 31, 2024 due to a higher average balance in our non-recourse securitization obligation, collateralized by residential mortgage loans in securitization trusts as well as our 2030 senior notes issued in May 2025. Overall, the increase in interest income offset the increase in interest expense and drove the $4.2 million increase to net interest income.

Total Realized and Unrealized Gains (Losses)

The components of total realized and unrealized gains (losses), net for the years ended December 31, 2025 and December 31, 2024 are set forth as follows:

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For the years ended December 31, 2025 and December 31, 2024, total realized and unrealized gains (losses), net, were a gain of $19.9 million and a gain of $14.5 million, respectively. For the year ended December 31, 2025, the $22.5 million of realized and unrealized gain on residential loans held in securitization trusts, net of non-recourse securitization obligation was the primary driver of the overall gain, which includes $28.6 million of unrealized gains offset by $6.1 million of realized loss. This unrealized gain is driven by valuation increases on the residential loans held in securitization trusts, net of non-recourse securitization obligation portfolio and the realized loss is driven by the loss of unamortized premiums associated with an increased rate of loans in our residential loans held in securitization trusts, net of non-recourse securitization obligation portfolio that were prepaid during the year. Offsetting this gain were realized losses on our interest rate futures portfolio, which will typically have a correspondingly negative impact when valuations of our residential mortgage loans portfolio increase as they did throughout 2025. Comparatively, for the year ended December 31, 2024, realized and unrealized gains on our portfolios of residential mortgage loans, TBAs, and interest rate futures were the primary drivers of the total gain, offset by realized losses on RMBS and unrealized losses on whole pool agency residential mortgage-backed securities (“Whole Pool Agency RMBS”).

Expenses

Operating Expenses

For the years ended December 31, 2025 and December 31, 2024, our operating expenses were $5.0 million and $6.8 million, respectively. Our operating expenses decreased compared to the comparative period due to continued cost savings actions such as in-sourcing of key accounting functions and vendor contract negotiations.

Stock Compensation

For the years ended December 31, 2025 and December 31, 2024, our stock compensation expense was $1.4 million and $2.0 million, respectively. The primary driver of this decrease was the final vesting of time-based stock awards issued at our IPO.

Operating Expenses Incurred with Affiliate

For the years ended December 31, 2025 and December 31, 2024, our operating expenses incurred with affiliate were $1.9 million and $1.8 million, respectively. These expenses, which are substantially comprised of payroll reimbursements to our Manager, increased slightly versus the comparative period due to standard annual compensation increases.

Securitization Expenses

For the year ended December 31, 2025 and December 31, 2024, our securitization expenses were $3.6 million and $3.8 million, respectively. The decrease in expense is driven primarily by a decrease in total securitization volume for the year ended December 31, 2025 versus the comparable period in 2024. Expenses incurred during the year ended December 31, 2025 are related to the AOMT 2025-4, AOMT 2025-6, AOMT 2025-R1, AOMT 2025-10, and AOMT 2025-HB2 securitizations. The securitization costs incurred for the comparable period in 2024 were associated with the AOMT 2024-3, AOMT 2024-4, AOMT 2024-6, AOMT 2024-10, and AOMT 2024-13 securitizations.

Management Fee Incurred with Affiliate

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For the years ended December 31, 2025 and December 31, 2024, our management fee incurred with affiliate was $4.6 million and $5.0 million, respectively. The decrease is due to the decline in our average Equity (as defined in the Management Agreement) for the year ended December 31, 2025 as compared to the same period in 2024.

Income Taxes

During the year ended December 31, 2025 and December 31, 2024 we recorded an income tax expense of approximately $0.5 million and $3.3 million, respectively based on our income associated with assets held in our TRS.

Our Portfolio

As of December 31, 2025, our portfolio consisted of approximately $2.7 billion of residential mortgage loans, RMBS, and other target assets. Certain of these portfolio assets are located in states such as Florida and California where natural disasters such as hurricanes, wildfires, and earthquakes may occasionally occur. We require all of our collateral to be adequately insured. The graphs in the subsequent detail of residential mortgage loans, residential mortgage loans held in securitization trusts, and residential mortgage loans underlying RMBS issuances show the percentage of residential mortgage loans held in each state where there is a concentration of loans.

The following table sets forth additional information regarding our portfolio, including the manner in which our equity capital was allocated among investment types, as of December 31, 2025:

(1)     Our Investment in Majority-Owned Affiliates is held at its amortized cost basis.

(2)    Other assets and liabilities presented is calculated as a net liability substantially comprised of $198.2 million due to broker for our     quarter-end purchase of certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in Majority-Owned Affiliates, which is considered a target asset.

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As of December 31, 2024, our portfolio consisted of approximately $2.2 billion of residential mortgage loans, RMBS, and other target assets. The following table sets forth additional information regarding our portfolio including the manner in which our equity capital was allocated among investment types, as of December 31, 2024:

(1)     Our Investment in Majority-Owned Affiliates is held at its amortized cost basis

(2)    Other assets and liabilities presented is calculated as a net liability substantially comprised of $202 million due to broker for our quarter-end purchase of certain Freddie Mac and Fannie Mae-issued Whole Pool Agency RMBS, and excluding the portion of “other assets” which includes our investment in a Majority-Owned Affiliates, which is considered a target asset.

Residential Mortgage Loans

The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2025:

The following table sets forth additional information on the residential mortgage loans in our portfolio as of December 31, 2024:

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The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2025:

The following charts illustrate the distribution of the credit scores and interest rates by the number of loans in our residential mortgage loan portfolio as of December 31, 2024:

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The following charts illustrate additional characteristics of our residential mortgage loans in our portfolio that we owned directly as of December 31, 2025, based on the product profile, borrower profile and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of December 31, 2025:

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2025. Numbers presented may not sum to 100% due to rounding.

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The following charts illustrate additional characteristics of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2024, based on the product profile, borrower profile and geographic location (percentages are based on the aggregate unpaid principal balance of such loans):

Characteristics of Our Residential Mortgage Loans as of December 31, 2024:

Note: No state in “Other” represents more than a 3% concentration of the residential mortgage loans in our portfolio that we owned directly as of December 31, 2024. Numbers presented may not sum to 100% due to rounding

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Residential Mortgage Loans Held in Securitization Trusts

The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2025:

(1) CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year.

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2025 (percentages are based on the aggregate unpaid principal balance of such loans):

Note: No state in “Other” represents more than a 3% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2025. Numbers presented may not sum to 100% due to rounding.

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The following table sets forth the information regarding the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2024:

The following chart illustrates the geographic distribution of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

Note: No state in “Other” represents more than a 4% concentration of the underlying collateral of our residential mortgage loans held in securitization trusts as of December 31, 2024. Numbers presented may not sum 100% due to rounding.

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RMBS

We have participated in numerous securitization transactions alongside other Angel Oak entities. In return, we received our pro rata share of bonds from these securitizations, and cash. At times, we were allocated certain risk retention securities as part of these transactions. Risk retention securities represent at least 5% of a horizontal or vertical slice of the bonds issued as part of the transaction.

Certain information regarding the mortgage loans underlying our portfolio of RMBS issued in AOMT securitization transactions is set forth below as of December 31, 2025 and December 31, 2024 unless otherwise stated:

(1) CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year. The AOMT 2025-HB2 securitization, completed in December 2025, does not yet have CPR statistics and is excluded from the average for AOMT 2025 securitizations.

(2) AOMT 2020-3 does not have CLTV or Federal Housing Finance Agency Home Price Index Estimates (“FHFA HPI Estimates”); accordingly, original CLTV is used.

(3) Represents the fair value of the securities we hold in the first loss tranche in each securitization.

(4) The fair value of the first loss pieces presented for the 2023 - 2025 securitizations is the total at risk for the Majority-Owned Affiliates.

(5) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average current size of the securitization.

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(1)     CPR is a method of expressing the prepayment rate for a mortgage pool that assumes that a constant fraction of the remaining principal is prepaid each month or year.

(2)    AOMT 2020-3 does not have CLTV or FHFA HPI Estimates; accordingly, original CLTV is used.

(3)    Represents the fair value of the securities we hold in the first loss tranche in each securitization.

(4)    The fair value of the first loss pieces presented for the 2023 - 2024 securitizations is the total at risk for the Majority-Owned Affiliates.

(5) Represents the average size of the subordinate securities we own as investments in each securitization relative to the average overall size of the securitization.

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The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of December 31, 2025:

(1)     Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(2)     The whole pool RMBS presented as of December 31, 2025 were purchased from a broker to whom the Company owes approximately $198.2 million, payable upon the settlement date of the trade. See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

(3)     A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $198.9 million, are not reflected in the consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets.

The following table provides certain information with respect to our RMBS portfolio received in AOMT securitization transactions and acquired from other third parties as of December 31, 2024:

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(1)     Repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs).

(2)     The whole pool RMBS presented as of December 31, 2024 were purchased from a broker to whom the Company owed approximately $202.0 million, payable upon the settlement date of the trade. See Part II, Item 8, Note 7 — Due to Broker in our audited consolidated financial statements included in this Annual Report on Form 10-K.

(3)     A portion of repurchase debt includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). These bonds, with a fair value of $163.9 million, are not reflected in the consolidated balance sheets, as the Company reflects the assets of the VIE (residential mortgage loans in securitization trusts - at fair value) on its consolidated balance sheets.

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2025:

The following table sets forth information with respect to our RMBS ending balances, at fair value, as of December 31, 2024:

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The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2025 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of December 31, 2025)

No state in “Other” represents more than a 3% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2025. Numbers presented may not sum to 100% due to rounding.

The following chart illustrates the geographic diversification of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2024 (percentages are based on the aggregate unpaid principal balance of such loans):

Geographic Diversification of Loans Underlying Our Portfolio

of RMBS Issued in AOMT Securitization Transactions

(as of December 31, 2024)

No state in “Other” represents more than a 3% concentration of the loans underlying our portfolio of RMBS issued in AOMT securitization transactions as of December 31, 2024. Numbers presented may not sum to 100% due to rounding.

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Liquidity and Capital Resources

Overview

Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund our investments and operating costs, make distributions to our stockholders, and satisfy other general business needs. Our financing sources currently include payments of principal and interest we receive on our investment portfolio, unused borrowing capacity under our in‑place loan financing lines and repurchase facilities, securitizations of our whole loans, and our ATM Program (as defined below). Additionally, on July 25, 2024, we closed an underwritten public offering and sale of, and issued, $50 million in aggregate principal amount of our 2029 senior notes. We deployed the majority of the net proceeds from the offering of our 2029 senior notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets substantially sourced from our affiliated proprietary mortgage lending platform and other target assets through the secondary market in a manner consistent with our strategy and investment guidelines. Additionally, we used the net proceeds from the offering of our 2029 senior notes to repurchase 1,707,922 shares of our common stock owned by Xylem Finance LLC, an affiliate of Davidson Kempner Capital Management LP, for an aggregate repurchase price of approximately $20.0 million. Furthermore, in May 2025, we closed an underwritten public offering and sale of, and issued, $42.5 million in aggregate principal amount of our 2030 senior notes. We used the majority of the net proceeds from the offering of our 2030 senior notes for general corporate purposes, which included the acquisition of non-QM loans and other target assets in a manner consistent with our strategy and investment guidelines. Our financing sources historically have included the foregoing, as well as capital contributions from our investors prior to our IPO, and the proceeds from our IPO and concurrent private placement (which capital has all been deployed). Going forward, we may also utilize other types of borrowings, including bank credit facilities and warehouse lines of credit, among others. We may also seek to raise additional capital through public or private offerings of equity, equity-related, or debt securities, depending upon market conditions. The use of any particular source of capital and funds will depend on market conditions, availability of these sources, and the investment opportunities available to us.

We have used and expect to continue to use loan financing lines to finance the acquisition and accumulation of mortgage loans or other mortgage‑related assets pending their eventual securitization. Upon accumulating an appropriate amount of assets, we have financed and expect to continue to finance a substantial portion of our mortgage loans utilizing fixed-rate term securitization funding that provides long‑term financing for our mortgage loans and locks in our cost of funding, regardless of future interest rate movements.

Securitization transactions may either take the form of the issuance of securitized bonds or the sale of “real estate mortgage investment conduit” securities backed by mortgage loans or other assets, with the securitization proceeds being used in part to repay pre-existing loan financing lines and repurchase facilities. We have sponsored and participated in securitization transactions with other entities that are managed by Angel Oak, and may continue to do so in the future, along with sponsoring sole securitization transactions in which we are the sole participant and contributor.

We believe these identified sources of financing will be adequate for purposes of meeting our short‑term (within one year) and our longer‑term liquidity needs. We cannot predict with certainty the specific transactions we will undertake to generate sufficient liquidity to meet our obligations as they come due. We will adjust our plans as appropriate in response to changes in our expectations and any potential changes in market conditions.

Description of Existing Financing Arrangements

As of December 31, 2025, we were a party to four uncommitted loan financing lines for a total borrowing capacity in an aggregate amount of up to $1.3 billion. Borrowings under uncommitted loan financing lines may be used to purchase whole loans for eventual securitization or loans purchased for long‑term investment purposes.

Our financing facilities are generally subject to limits on borrowings related to specific asset pools (“advance rates”) and restrictive covenants, as is usual and customary. As of December 31, 2025, the advance rates (when required) of our four active lenders ranged from 75% to 92%, depending on the asset type and loan delinquency status. Our most restrictive covenants (when covenants are required by any of our four active lenders) included: (1) our minimum tangible net worth must not (i) decline 20% or more in the previous 30 days, 25% or more in the previous 90 days, or 35% or more in the previous year, or (ii) fall below $200.0 million of tangible net worth as of September 30, 2022 plus 50% of any capital contribution made or raised after September 30, 2022; (2) our minimum liquidity must not fall below the greatest of (x) the product of 5% and the aggregate repurchase price as it relates to Global Investment Bank 3 as of such date of determination, (y) $10.0 million and (z) any other amount of liquidity that we have covenanted to maintain in any other note, indenture, loan agreement, guaranty, swap agreement or any other contract, agreement or transaction (including, without limitation, any repurchase agreement, loan and security agreement, or similar credit facility or agreement for borrowed funds); and (3) the maximum ratio of our and our subsidiaries’ total indebtedness to tangible net worth must not be greater than 5:1. Our minimum liquidity requirement as of December 31, 2025 was $10.0 million.

A description of each loan financing line is set forth as follows:

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Multinational Bank 1 Loan Financing Facility

On April 13, 2022, we and two of our subsidiaries entered into a master repurchase agreement with a multinational bank (“Multinational Bank 1”). Our subsidiaries are each considered a “Seller” under this agreement. From time to time and pursuant to the agreement, either of our subsidiaries may sell to Multinational Bank 1, and later repurchase, up to $600.0 million aggregate borrowings on mortgage loans.

Pursuant to the terms of the master repurchase agreement, the agreement may be renewed every six months for a maximum six-month term. In the fourth quarter of 2025, the loan financing facility with Multinational Bank 1 was extended through June 25, 2026 in accordance with the terms of the agreement, which contemplates three-month renewals.

The amount expected to be paid by Multinational Bank 1 for each eligible mortgage loan is based on an advance rate as a percentage of either the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less. Pursuant to the agreement, Multinational Bank 1 retains the right to determine the market value of the mortgage loans in its sole commercially reasonable discretion. The loan financing line is marked‑to‑market. Additionally, Multinational Bank 1 is under no obligation to purchase the eligible mortgage loans we offer to sell to them. The interest rate on any outstanding balance under the master repurchase agreement that the applicable subsidiary is required to pay Multinational Bank 1 is generally in line with other similar agreements that the Company or one or more of its subsidiaries has entered into, where the interest rate is equal to the sum of (1) a pricing spread from 1.65% to 2.10%, and (2) the average SOFR for each U.S. Government Securities Business Day (as defined in the master repurchase agreement) until two U.S. Government Securities Business Days prior to the date the applicable loan is repurchased by the applicable subsidiary.

The obligations of the subsidiaries under the master repurchase agreement are guaranteed by the Company pursuant to a guaranty executed contemporaneously with the master repurchase agreement. In addition, and similar to other repurchase agreements that the Company has entered into, the Company is subject to various financial and other covenants, including those relating to (1) maintenance of a minimum tangible net worth; (2) a maximum ratio of indebtedness to tangible net worth; and (3) minimum liquidity.

The agreement contains margin call provisions that provide Multinational Bank 1 with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under these provisions, Multinational Bank 1 may require us or our subsidiaries to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Multinational Bank 1’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiaries are also required to pay certain customary fees to Multinational Bank 1 and to reimburse Multinational Bank 1 for certain costs and expenses incurred in connection with its structuring, management, and ongoing administration of the master repurchase agreement.

Global Investment Bank 2 Loan Financing Facility

On March 28, 2024, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 2”), replacing the existing master repurchase agreement with Global Investment Bank 2 entered into on February 13, 2020. The Company is guarantor under the current facility, one of the subsidiaries is seller and Global Investment Bank 2 is buyer. Pursuant to the agreement, one of our subsidiaries may sell to Global Investment Bank 2, and later repurchase, up to $250.0 million aggregate borrowings on mortgage loans. The agreement is set to terminate on March 27, 2026, unless terminated earlier pursuant to the terms of the agreement.

The principal amount paid by Global Investment Bank 2 for each mortgage loan is based on a percentage of the market value, cost‑basis value, or unpaid principal balance of the mortgage loan (depending on the type of loan and certain other factors and subject to certain other adjustments). Pursuant to the agreement, Global Investment Bank 2 retains the right to determine the market value of the mortgage loan collateral in its sole good faith discretion. Additionally, Global Investment Bank 2 is under no obligation to purchase the eligible mortgage loans we offer to sell to them. Upon our or our subsidiary’s repurchase of the mortgage loan, our subsidiaries are required to repay Global Investment Bank 2 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) (A) the greater of (i) 0.00% and (ii) Term SOFR (which is defined as the forward-looking term rate based on the Secured Overnight Financing Rate for a corresponding tenor of one month) and (B) a pricing spread generally ranging from 1.65% to 2.40%.

The agreement requires us to maintain various financial and other covenants, which include requirements surrounding: (1) adjusted tangible net worth; (2) liquidity; and (3) our indebtedness to our adjusted tangible net worth.

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The agreement contains margin call provisions that provide Global Investment Bank 2 with certain rights in the event of a decline in the market value or cost‑basis value of the purchased mortgage loans. Under these provisions, Global Investment Bank 2 may require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

In addition, the agreement contains events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 2’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Global Investment Bank 2 and to reimburse Global Investment Bank 2 for certain costs and expenses incurred in connection with its structuring, management and ongoing administration of the agreement.

Global Investment Bank 3 Loan Financing Facility

On October 24, 2018, two of our subsidiaries entered into a master repurchase agreement with a global investment bank (“Global Investment Bank 3”) for which we serve as guarantor of our subsidiaries’ obligations. Our subsidiaries, are each considered a “Seller” under this agreement. Pursuant to the initial agreement, our subsidiaries could sell to Global Investment Bank 3, and later repurchase, up to $200.0 million aggregate borrowings on mortgage loans. On September 26, 2025, the facility’s termination date was extended to September 26, 2026.

The loan financing line is marked‑to‑market at fair value, where Global Investment Bank 3 retains the right to determine the market value of the mortgage loan collateral in its sole good faith discretion and in a commercially reasonable manner and is under no obligation to purchase the eligible mortgage loans we offer to sell to them. Further, the principal amount paid by Global Investment Bank 3 for each eligible mortgage loan is based on a percentage of the outstanding principal balance of the mortgage loan or the market value of the mortgage loan, whichever is less. Upon any subsidiary’s repurchase of the mortgage loan, such subsidiary is required to repay Global Investment Bank 3 the principal amount related to such mortgage loan plus accrued and unpaid interest at a rate based on the sum of (1) Compound SOFR and (2) a pricing spread generally ranging from 1.75% - 4.75%.

The agreement contains margin call provisions that provide Global Investment Bank 3 with certain rights in the event of a decline in the market value of the purchased mortgage loans. Under those provisions, Global Investment Bank 3 could require us or our subsidiary to transfer cash sufficient to eliminate any margin deficit resulting from such a decline.

The agreement requires us to maintain various financial and other customary covenants. The agreement also sets forth events of default (subject to certain materiality thresholds and grace periods), including payment defaults, breaches of covenants and/or certain representations and warranties, cross‑defaults, bankruptcy or insolvency proceedings and other events of default customary for this type of transaction. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the agreement and Global Investment Bank 3’s right to liquidate the mortgage loans then subject to the agreement.

We and our subsidiary are also required to pay certain customary fees to Global Investment Bank 3 and to reimburse Global Investment Bank 3 for certain costs and expenses incurred in connection with its structuring, management, and ongoing administration of the agreement.

Global Investment Bank 4 Loan Financing Facility

On October 6, 2025, the Company and one of its subsidiaries entered into a $200.0 million repurchase facility with a Global Investment Bank 4 through the execution of the Global Investment Bank 4 Master Repurchase Agreement. The amount expected to be advanced by Global Investment Bank 4 is generally in line with other similar agreements that the Company has entered into. Additionally, the rates, terms, events of default, and remedies for such events of default contained within the Master Repurchase Agreement are generally in line with other similar agreements that the Company has entered into. The interest rate is equal to the sum of (1) a spread of 1.60%, and (2) Term SOFR. The Company is subject to various financial and other covenants, including those relating to (1) declines in tangible net worth; (2) a maximum ratio of indebtedness to tangible net worth; and (3) minimum liquidity. The Master Repurchase Agreement expires on October 6, 2027, unless terminated earlier pursuant to the terms of the Master Repurchase Agreement.

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The following table sets forth the details of our financing lines as of each of December 31, 2025 and December 31, 2024:

(1)     On December 26, 2025, this financing facility was extended through June 25, 2026 in accordance with the terms of the agreement, which contemplates rolling three-month renewals. The interest rate pricing spread remained unchanged from the prior extension at a range from 1.65% to 2.10%.

(2)     On March 28, 2024, the Company and two of its subsidiaries terminated the existing facility with Global Investment Bank 2 and the Company and two different subsidiaries entered into a new facility with Global Investment Bank 2 wherein the Company is guarantor, one of the subsidiaries is seller and Global Investment Bank 2 is buyer. This updated facility has been extended through March 27, 2026. On October 10, 2025, the facility was amended to, reduce the interest rate pricing spread to a range of 1.65% to 2.40%; prior to this amendment, the interest rate pricing spread was a range of 1.75% to 3.35%.

(3)     On September 26, 2025, the facility’s termination date was extended to September 26, 2026. In addition, the interest rate pricing spread was reduced to a range from 1.75% to 4.75%; prior to this extension, the interest rate pricing spread was a range from 1.90% to 4.75%.

(4)     On October 6, 2025, the Company and one of its subsidiaries entered into a $200.0 million repurchase facility with Global Investment Bank 4 through the execution of the Global Investment Bank 4 Master Repurchase Agreement. The amount expected to be advanced by Global Investment Bank 4 is generally in line with other similar agreements that the Company has entered into. Additionally, the rates, terms, events of default, and remedies for such events of default contained within the Master Repurchase Agreement are generally in line with other similar agreements that the Company has entered into. The interest rate is equal to the sum of (1) a spread of 1.60%, and (2) Term SOFR. The Global Investment Bank 4 Master Repurchase Agreement expires on October 6, 2027, unless terminated earlier pursuant to the terms of the Global Investment Bank 4 Master Repurchase Agreement.

The following table sets forth the total unused borrowing capacity of each financing line as of December 31, 2025:

Although available financing is uncommitted for each of these lines of credit, the Company’s unused borrowing capacity is available if it has eligible collateral to pledge and meets other borrowing conditions as set forth in the applicable agreements.

Short‑Term Repurchase Facilities

In addition to our existing loan financing lines, we employ short‑term repurchase facilities to borrow against U.S. Treasury Securities, securities issued by AOMT, Angel Oak’s securitization platform, and other securities we may acquire in accordance with our investment guidelines.

The following table sets forth certain characteristics of our short-term repurchase facilities as of December 31, 2025 and December 31, 2024:

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(1)     A portion of repurchase debt outstanding as of December 31, 2025 and December 31, 2024 includes borrowings against retained bonds received from on-balance sheet securitizations (i.e., consolidated VIEs). See Item 8, Note 5 — Investment Securities in our audited consolidated financial statements included in this Annual Report on Form 10-K.

The following table presents the amounts of collateralized borrowings outstanding under repurchase facilities as of the end of each quarter, the average amount of collateralized borrowings outstanding under repurchase facilities during the quarter and the highest balance of any month end during the quarter:

We utilize short‑term repurchase facilities on our RMBS portfolio and to finance assets for REIT asset test purposes. Over time, the need to purchase securities for REIT asset test purposes will be reduced as we obtain and participate in additional securitizations and acquire assets directly for investment purposes. We will continue to use repurchase facilities on our RMBS portfolio to add additional leverage which increases the yield on those assets. Our use of repurchase facilities is generally highest at the end of any particular quarter, as shown in the table above, where the quarter-end balance and the highest month-end balance in each quarter are typically equivalent.

Securitization Transactions

In December 2025, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans secured by second lien HELOCs on one‑to‑four family residential properties. In the transaction, AOMT 2025-HB2 issued approximately $281.4 million in face value of bonds. Our proportionate share of 21.03% of the retained bonds and investments in MOAs was approximately $7.0 million, including a retained discount on issuance of approximately $0.2 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $43.4 million and released cash of $12.4 million, which was used for new loan purchases and operational purposes.

We derecognized the mortgage loans sold in AOMT 2025-HB2 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2025.

In October 2025, we were the sole participant in a securitization transaction of a pool of residential mortgage loans secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2025-10 issued approximately $274.3 million in face value of bonds. We used the proceeds to repay outstanding debt of approximately $237.4 million and retained cash of $22.1 million, which was used for new loan purchases and operational purposes.

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We are the sole member of the depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2025-10 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2025.

In May 2025, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2025-6 issued approximately $349.7 million in face value of bonds. Our proportionate share of 24.94% of the retained bonds was approximately $8.1 million, including a retained premium on issuance of approximately $2.7 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $73.1 million and retained cash of $9.2 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2025-6 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2025.

In April 2025, we were the sole participant in a securitization transaction of a pool of residential mortgage loans secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2025-4 issued approximately $284.3 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $242.4 million and retained cash of $24.7 million, which was used for new loan purchases and operational purposes.

We are the sole member of the depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2025-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2025.

In December 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-13 issued approximately $288.9 million in face value of bonds. Our proportionate share of 57.92% of the retained bonds and investments in MOAs was approximately $15.1 million, including a retained premium on issuance of approximately $4.4 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $141.5 million and retained cash of $15.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-13 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2025.

In October 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-10 issued approximately $316.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $260.4 million and retained cash of $39.4 million, which was used for new loan purchases and operational purposes.

We are the sole member of the depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2024-10 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2025.

In June 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-6 issued approximately $479.6 million in face value of bonds. Our proportionate share of 4.51% of the retained bonds and investments in MOAs was approximately $2.7 million, including a retained discount on issuance of approximately $0.8 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $15.8 million and retained cash of $1.8 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-6 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2025.

In April 2024, we were the sole participant in a securitization transaction of a pool of residential mortgage loans secured exclusively by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-4 issued approximately $299.8 million in face value of bonds. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $235.9 million and retained cash of $39.1 million, which was used for new loan purchases and operational purposes.

We are the sole member of the Depositor and also own and hold the call rights on the XS tranche of bonds, which is the “controlling class” of the bonds. We have consolidated the AOMT 2024-4 securitization on our consolidated balance sheet, maintaining the residential mortgage loans held in the securitization trust and the related financing obligation thereto on our consolidated balance sheets as of December 31, 2025.

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In March 2024, we and other affiliated entities participated in a securitization transaction of a pool of residential mortgage loans secured primarily by first liens on one‑to‑four family residential properties. In the transaction, AOMT 2024-3 issued approximately $439.6 million in face value of bonds. Our proportionate share of 10.98% of the retained bonds and investments in MOAs was approximately $5.3 million, including a retained discount on issuance of approximately $1.6 million. We used the proceeds of the securitization transaction to repay outstanding debt of approximately $35.9 million and retained cash of $4.6 million, which was used for operational purposes.

We derecognized the mortgage loans sold in AOMT 2024-3 and recorded investments in RMBS and majority-owned affiliates (which is located within “other assets” on our consolidated balance sheet) as of December 31, 2025.

Notes Offering

The Company’s Senior Unsecured Notes consist of $42.5 million principal amount of its 2030 senior notes and $50.0 million principal amount of its 2029 senior notes. The 2030 senior notes were issued in May 2025 in a public offering for net proceeds of approximately $40.6 million and the 2029 senior notes were issued in July 2024 in a public offering for net proceeds of approximately $47.5 million. The below table provides a summary of the Senior Unsecured Notes as of December 31, 2025 ($ in thousands).

(1)     The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by our operating partnership, including the due and punctual payment of principal, premium, if any, and interest on the Senior Unsecured Notes, whether at stated maturity, upon acceleration, call for redemption or otherwise.

(2)     The Company has the option to redeem the Senior Unsecured Notes earlier than the maturity date.

(3)     The Company may redeem the Senior Unsecured Notes in whole or in part at any time on or after the optional redemption date, at a redemption price equal to 100% of the outstanding principal amount of the Senior Unsecured Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of certain events relating to a change of control of the Company, the Company must make an offer to repurchase all outstanding Senior Unsecured Notes at a price in cash equal to 101% of the principal amount of the Senior Unsecured Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

(4)     The 2030 Notes bear interest at a rate equal to 9.75% per year, payable in cash quarterly in arrears on March 1, June 1, September 1, and December 1 of each year, beginning on September 1, 2025. The 2029 Notes bear interest at a rate equal to 9.50% per year, payable in cash quarterly in arrears on January 30, April 30, July 30 and October 30 of each year.

The below table details the total interest expense incurred on the Senior Unsecured Notes during the years ended December 31, 2025 and December 31, 2024 ($ in thousands).

At December 31, 2025 and December 31, 2024, the accrued interest payable on the Senior Unsecured Notes was $2.2 million and $0.8 million, respectively.

At December 31, 2025 and December 31, 2024, the unamortized deferred debt issuance cost was $1.2 million and $1.4 million, respectively. The unamortized debt issuance costs will be amortized until maturity.

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ATM Program

On August 8, 2024, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) to sell shares of the Company’s common stock from time to time having an aggregate gross sales price of up to $75.0 million, of which $60.2 million remains available as of December 31, 2025, through an “at the market” equity offering program (the “ATM Program”). During the years ended December 31, 2025 and December 31, 2024, the Company issued and sold 1,277,812 and 188,456 shares, respectively, of its common stock through its ATM Program resulting in proceeds of $12.3 million and $2.3 million, respectively, net of commissions and fees. These shares of common stock were issued in SEC registered transactions off the Company’s shelf registration statement.

Leverage and Hedging Strategies

We finance our assets with what we believe to be a prudent amount of leverage, which will vary from time to time based upon the particular characteristics of our portfolio, availability of financing, and market conditions.

Subject to maintaining our qualification as a REIT and maintaining our exclusion from regulation as an investment company under the Investment Company Act, we expect to utilize various derivative instruments and other hedging instruments to mitigate interest rate risk, credit risk and other risks. For example, we may enter into hedging transactions with respect to interest rate exposure on one or more of our assets or liabilities. Any such hedging transactions could take a variety of forms, including the use of derivative instruments such as interest rate swap contracts, index swap contracts, interest rate cap or floor contracts, futures or forward contracts, and options.

Cash Availability

Cash and cash equivalents

Our cash balance as of December 31, 2025 was sufficient to meet our liquidity covenants under our financing facilities and our Senior Unsecured Notes. We believe that we maintain sufficient cash to continue to meet margin calls on our financing facilities, should such margin calls occur. Due to market volatility, some of our cash was restricted, as further described below, by margin maintenance requirements, along with cash collateral held by counterparties for interest rate futures and repurchase obligations. We may also participate in upcoming securitizations either solely or with other Angel Oak entities. We also have the ability to leverage currently unleveraged securities or whole loan assets, if we deem those actions advisable.

Restricted Cash

Restricted cash of approximately $3.7 million as of December 31, 2025 was comprised of: $2.5 million in interest rate futures margin collateral; and margin collateral for securities sold under agreements to repurchase of $1.2 million. Our counterparties did not require any margin collateral for TBAs as of December 31, 2025.

Restricted cash of approximately $2.1 million as of December 31, 2024 was comprised of: $0.9 million in interest rate futures margin collateral; and margin collateral for securities sold under agreements to repurchase of $1.2 million. Our counterparties did not require any margin collateral for TBAs as of December 31, 2024.

Cash Flows

Cash outflows used in operating activities of $407.0 million for the year ended December 31, 2025 as compared to net outflows of $221.5 million for the year ended December 31, 2024 were primarily due to the increase in cash outflows from purchases of residential mortgage loans, the net change in TBA securities and interest rate futures contracts, the decrease in cash inflows from sales of residential mortgage loans into affiliate’s securitization trust, offset by the increase in cash inflows from principal payments on residential mortgage loans for the year ended December 31, 2025, compared to the year ended December 31, 2024.

Investing cash net inflows of $13.7 million for the year ended December 31, 2025 as compared to $120.5 million of inflows for the year ended December 31, 2024 were primarily due to the timing of purchases and maturities of U.S. Treasury securities between the comparative periods.

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Financing cash inflows of $395.7 million for the year ended December 31, 2025 as compared to $99.3 million of inflows for the year ended December 31, 2024 were primarily due funds received from increased securitization activity in the year ended December 31, 2025 compared to the year ended December 31, 2024.

Cash Flows - Residential and Commercial Loan Classification

Residential loan activity is recognized in the statement of cash flows as an operating activity, as our residential mortgage loans are generally held for a short period of time with the intent to securitize these loans. Commercial mortgage loan activity is recognized in the statement of cash flows as an investing activity, as our commercial mortgage loan portfolio is generally deemed to be held for investing purposes.

Recent Accounting Pronouncements

Refer to the notes to our consolidated financial statements included in Part II, Item 8, Note 2 — Summary of Significant Accounting Policies, of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements and any expected impact on us.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. We expect quarter-to-quarter GAAP earnings volatility from our business activities. This volatility can occur for a variety of reasons, particularly changes in the fair values of consolidated assets and liabilities. In addition, the amount or timing of our reported earnings may be impacted by technical accounting issues and estimates.

Management discusses the ongoing development and selection of the critical accounting policies as set forth below with the Audit Committee of our Board of Directors:

Fair Value Measurements

We report various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option. A fair value measurement represents the price at which an orderly transaction would occur between willing market participants at the measurement date. This definition of fair value focuses on exit price and prioritizes the use of market-based inputs over entity-specific inputs when determining fair value. Inputs may be observable (reflecting assumptions that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity) or unobservable (the entity’s own assumptions).

A fair value hierarchy for inputs is implemented in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs are used when available. The availability of valuation techniques and the ability to attain observable inputs can vary from investment to investment and are affected by a wide variety of factors, including the type of investment, whether the investment is newly issued and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction.

The fair value hierarchy is categorized into three broad levels (Levels 1, 2, and 3) based on the inputs as described in Part II, Item 8, Note 9 – Fair Value Measurements. The degree of judgment exercised in determining fair value is significant for investments categorized in Level 2, and greatest for investments categorized in Level 3, as the inputs to these levels are less observable or unobservable in the market, and therefore the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed.

Valuation estimates are subject to uncertainty due to inherently subjective valuation inputs. The most significant valuation estimates to us regarding assets are those for residential mortgage loans (including residential mortgage loans in securitization trusts) and Non-Agency RMBS, as those two categories of assets are the largest asset classes on our balance sheet subject to Level 2 or Level 3 valuation estimates. The most significant valuation estimates to us regarding liabilities relates to the portion of the non-recourse securitization obligations, collateralized by residential mortgage loans, for which the fair value option was elected, which is subject to Level 2 valuation estimates. The assumptions regarding valuations for these asset and liability categories are described as follows:

•Residential Mortgage Loans (including Residential Mortgage Loans in Securitization Trusts) - Our company recognizes residential mortgage loans at fair value. The fair value of the residential mortgage loans is predominantly based on trading activity observed in the marketplace, provided by a third‑party pricing service. The third‑party pricing service obtains comparative pricing from banks, brokers, hedge funds, REITs and from its own brokerage business. The third‑party pricing service also maintains a spread matrix created from trading levels observed in the secondary market and from indications of holding values in client investments. The spreads are meant to depict the required spread demanded by investors in the current

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environment. The matrix is segregated by loan structure type (hybrid arm, fixed rate, home equity line of credit, second lien, pay option arm, etc.), delinquency status, and loan to value strata. Significant matrix inputs are analyzed at the loan level. The performing residential mortgage loans are categorized as Level 2 in the fair value hierarchy, while non‑performing loans are categorized as Level 3 given their limited marketability and availability of observable valuation inputs. Both Level 2 and Level 3 loans matrix inputs include collateral behavioral models including prepayment rates, default rates, loss severity, and discount rates.

•Non‑Agency RMBS (“Non‑Agency”) - Non‑Agencies consist of investments in collateralized mortgage obligations. Our company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for the investments. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline Discount Margin/Yield, recovery assumptions, tranche type, collateral coupon, age and loan size and other inputs specific to each security. These quotes are most reflective of the price that would be achieved if the security was sold to an independent third party on the date of the consolidated financial statements. Non‑Agencies are categorized in Level 2 of the fair value hierarchy.

•Non-recourse securitization obligations, collateralized by residential mortgage loans - The portion of this obligation for which we have elected the fair value option uses the prices of the underlying bonds securing the related residential mortgage loans in securitization trusts. Our company utilizes PriceServe, Bank of America’s independent fixed income pricing service, as the primary valuation source for these bonds. PriceServe obtains its price quotes from actual sales or quotes for sale of the same or similar securities and/or provides model‑based valuations that consider inputs derived from recent market activity including default rates, conditional prepayment rates, loss severity, expected yield to maturity, baseline discount margin/yield, recovery assumptions, tranche type, collateral coupon, age and loan size, and other inputs specific to each security. We believe that these quotes are most reflective of the price that would be achieved if the bonds were sold to an independent third party on the date of the consolidated financial statements. The portion of this liability for which we have elected the fair value option is categorized as Level 2 in the fair value hierarchy.

Variable Interest Entities

A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (a) the power to control the activities that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. For VIEs that do not have substantial on-going activities, the power to direct the activities that most significantly impact the VIE’s economic performance may be determined by an entity’s involvement with the design and structure of the VIE.

VIEs for which we are considered to be the primary beneficiary:

Determining the primary beneficiary of a VIE requires judgment. We determined that for the securitizations we consolidate, our ownership provides us with the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. In addition, we have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or power, or we were determined to have power in connection with our involvement with the structure and design of the VIE.

The securitization trusts are structured as entities that receive principal and interest on the underlying collateral and distribute those payments to the security holders. The assets held by the securitization entities are restricted in that they can only be used to fulfill the obligations of the securitization entity. Our risks associated with our involvement with these VIEs are limited to our risks and rights as a holder of the security we have retained as well as certain risks which may occur when we act as either the sponsor and/or depositor of and the seller, directly or indirectly to, the securitization entities.

Our interest in the assets held by consolidated securitization vehicles, which are consolidated on our consolidated balance sheets, is restricted by the structural provisions of these trusts, and a recovery of our investment in the vehicles will be limited by each entity’s distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our consolidated balance sheets, are non-recourse to us, and can only be satisfied using proceeds from each securitization vehicle’s respective asset pool.

The assets of securitization entities are comprised of RMBS or residential mortgage loans.

VIEs for which we are not considered to be the primary beneficiary:

We perform ongoing reassessments of whether changes in the facts and circumstances regarding our involvement with a VIE causes our consolidation conclusion to change.

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